Dr Pepper Snapple (DPS) Q4 Earnings: A Beat in the Cards?

Dr Pepper Snapple Group, Inc.DPS is set to report fourth-quarter 2017 results on Feb 14, before the market opens.

Notably, Dr Pepper Snapple will be acquired by coffee-maker Keurig Green Mountain, Inc. in the second quarter of 2018.

Last quarter, the company’s earnings missed the Zacks Consensus Estimate by 4.4%. Moreover, Dr Pepper Snapple surpassed earnings expectations in only one of the last four quarters, the average negative surprise being 0.6%.

Let us analyze a few other factors that might affect Q4 results:

Sluggish carbonated beverages volume trends have been hurting carbonated beverages category growth for quite some time. Cross-category competition as well as growing health and wellness consciousness are also denting the category. The diet drinks are also under pressure due to increasing consumer concern regarding the use of artificial sweeteners.

To fight the decline in volume trends, the company is trying to diversify by introducing healthier beverage options. The acquisition of Bai Brands indicates the company’s efforts to diversify beyond carbonated soft drinks.

Per the Zacks Consensus Estimate, Packaged Beverages segment sales (accounting for more than 73% of total revenues) will rise 5.7% in the quarter. Last quarter, segment sales increased 3% on favorable product and package mix.

Beverage Concentrates segment revenues were up 3% year over year in the third quarter on an increase in price and shipments of concentrate and lower discounts. In the fourth quarter, revenues will grow 3.6% year over year, per the consensus estimate.

Also, Latin America Beverages segment revenues will likely be up 11.1% in the to-be-reported quarter. Revenues increased 5% in the prior quarter owing to a 2% rise in sales volumes and favorable pricing.

Overall, analysts polled by Zacks expect revenues of $1.77 billion, reflecting a 5.4% increase from a year ago.

This apart, the company’s Rapid Continuous Improvement (RCI) program to reduce inventory and storage costs as well as improve cash flows, looks impressive. The cash can be returned to shareholders via dividends and re-invested in the business to boost the top line.

Which Way Are Estimates Trending?

A look at estimate revisions lends us an idea of analyst’s expectations right before a company’s earnings release. The Zacks Consensus Estimate for fourth-quarter earnings per share declined by a cent in the past 60 days to $1.17. However, this reflects a year-over-year increase of 12.5%.

Quantitative Model Prediction

Here is what our quantitative model predicts.

Dr Pepper Snapple has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Dr Pepper is 0.04%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Dr Pepper carries a Zacks Rank #3, which further increases the odds of an earnings beat.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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